The horrific events in Brussels are still resonating across Europe today. And, as Bloomberg's Mark Cudmore explains, despite what many analysts are saying, the real impact is likely to be more widespread than the very intense emotional anguish.
Mohamed El-Erian -- a regular Bloomberg columnist -- has been one of the most high-profile commentators to express the view that the “macroeconomic effects tend to be limited, and they fade,” in reference to acts of terrorism.
Sadly, that may not be the case this time.
While most global markets seemed to be quick to neutralize the price impact yesterday, the whole European Union project is under threat and markets are waking up to that...
This attack will have three geopolitical aftershocks beyond the human tragedy.
It further undermines an already fragile Schengen agreement. Not only does the step-up in border controls have significant financial, bureaucratic, time and efficiency costs, but it erodes one of the fundamental pillars of the EU.
Pro-integration establishment politicians will suffer in the polls across Europe. Angela Merkel, who has been so crucial in keeping the EU together over the last decade, may be compromised more than most, as criticism of her open-arms approach to refugees has jumped to the forefront of domestic politics.
Finally, this terrible incident marginally increases the probability of Brexit, which in itself would be a major blow to the EU and set a dangerous precedent that greater integration isn’t inevitable.
The Brexit-related reaction has three parts in itself:
there will be an increase in anti-immigration sentiment;
it feeds the perception that the U.K. is not necessarily safer within the EU; and
it does nothing to counter the circular argument that because the EU is a weakening construct, it’s better to jump early and avoid the rush.
The cost of hedging against sharp swings in sterling surged to its highest ever on Wednesday as investors stepped up to protect themselves from the uncertainty of Britain's upcoming vote on whether to stay in the European Union.
The personal and individual scars of previous terrorist attacks remain long after the fading of market and economic impacts. This time, I fear that the geopolitical effects will also persist.